Flipping houses or condos can make you a lot of money in a relatively short period of time. You’ve got to be smart about it, know what to upgrade and understand the demand in the marketplace. This practice has been very popular with new condominiums purchased from the builder’s specs, especially in Toronto and Vancouver.
Flipping has been very lucrative over the past 15 years of price increases in the housing market and I’ve had many clients experience significant success. Here’s the catch. Canada Revenue Agency (CRA) we all know these guys. CRA is currently cracking down on condo owners or prospectors in the Toronto and Vancouver markets. They’re looking at owners who purchased from builder’s specs, waited for occupancy, never moved in and sold the unit for a profit. Often that profit can be substantial and seemingly tax free to a significant amount of the population. Not so fast…
CRA auditors are looking for those people who have sold their property less than a year after taking possession but others could be at risk if their timeline is less than 2 years occupancy. If the CRA opens a file against you they have the ability to go back 7 years to investigate previous transactions. I don’t take issue with the CRA trying to collect this unreported revenue, however there can be circumstances that warrant a sale. Often people can fall on hard times, losing a job or possibly a separation from their spouse. To CRA’s defense they will take these factors into account but what about the costs involved with making a defense? I’m sure as hell not going to take on the government without legal counsel. These costs can be significant, I know first hand as I’ve had to defend a claim with regards to a marijuana grow-op gone bad… not my grow-op but I represented a client who had their rental house turned into a factory. That’s a long story and might worthy for a posting here all on its own.
Point being here, people fall into the gaps and can suffer significant penalties both financially and emotionally. There’s no real measure of how long you need to stay in a property before you can sell it for a profit and not pay capital gains tax. The safe assumption would be two years, however when the CRA digs deeper and finds out that you’ve done the same thing several times over, you might be in trouble.
Flipping houses can be a very profitable and rewarding adventure. There’s only a thousand shows on television that show you how to do it and they make it look easy. I’m leaning towards a reno project here I suppose. Renovating and flipping is much harder than it seems on TV. I’ve gone through two significant renovations, neither easy and never as planned.
Do you want to try a renovation and flip project? I’d like to do another but life can get in the way sometimes with kids and a family. I wouldn’t have it any other way.
OakvilleRealEstateBlog.net is written by David Marshall, providing insights and helpful tips for Buyers and Sellers. David has been selling Real Estate in the Oakville and surrounding areas for over 13 years, working as a Sales Representative for RE/MAX Aboutowne Realty Corp. David also operates www.OakvilleRealEstate.com among other domains.